Senate Looks for Changes in Credit Card Rules

WASHINGTON (AP) - Consumers who are paying more in interest
because they have fallen behind on their credit-card bills could
regain their older, lower rates if they pay their bills on time for
six months, under a compromise proposal reached by senators seeking
changes in laws governing the credit card industry.

The Senate proposal was brokered between Republicans, who say
lenders should be able to take into account a person's behavior,
and Democrats, who contend that the practice of hiking rates on
past balances prevents consumers from climbing out of debt.

The agreement was included as part of a broader package on
credit card reform, announced Monday by Senate Banking Committee
Chairman Chris Dodd, D-Conn. The bill was expected to pass this
week with President Barack Obama's support.

Dodd had originally proposed an outright ban on retroactive rate
increases. But without Republican support, his bill was considered
unlikely to overcome procedural hurdles in the Senate.

The latest proposal would prohibit lenders from increasing
interest rates on past buys unless the cardholder has fallen at
least 60 days behind. At the same time, lenders would be required
to review a cardholder's terms every six months.

"It makes a strong point to the industry that if they are going
to change the terms of a card based on (risk) factors, it should be
a two-way street," said Nick Bourke, manager of the Safe Credit
Cards Project at the Pew Health Group.

Under the request by Republicans, the bill also would require
the Federal Reserve to report to Congress every two years on the
cost and availability of credit.

"Should this legislation become law, it is crucial that
Congress carefully monitor its implementation and effect to ensure
that this balance in design is also a balance in fact," said Sen.
Richard Shelby of Alabama, the top Republican on the Banking
Committee.

Senate Majority Leader Harry Reid told reporters on Monday that
he thinks Republicans are jumping on board because they don't have
a choice.

"I think they've come to the realization that there are a lot
of good things they can be involved in. They can go home and take
credit for helping us do this," said Reid, D-Nev.

Reid said the recent party switch by Sen. Arlen Specter, D-Pa.,
also has forced Republicans to become "more realistic."

Debate on the bill comes as the Center for Responsible Lending
estimated that some 10 million cardholders have seen their interest
rates increase in the last six months for no particular reason.
Many cardholders have seen increases of 10 percentage points or
more, the group says.

The Senate bill would require that promotional rates last at
least six months. It also prohibits rate increases in the first
year after an account is opened.

Other provisions in the bill would:
-Require anyone under 21 to prove that he or she can repay the
money before being given a card, or have a parent or guardian
promise to pay off the debt if he or she defaults.
-Require lenders to give customers 45 days notice before
increasing rates and mail their bills 21 days before the balance is
due.
-Ban fees if customers want to pay their bills by phone or
online.
-Prohibit over-the-limit fees unless a cardholder elects to be
allowed to go over their limit.
-Require lenders to say how much time it would take and how much
money in interest would be paid if only the minimum monthly
payments are made.
-Require that gift cards remain valid for five years.

The bill would go into effect nine months after enactment. The
House passed its own version of the bill in April by a 357-70 vote.


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